Evolution AB (publ)

Now I will hand the conference over to the speakers, CEO Martin Karlsson and CFO Joakim Andersson. Please go ahead.

Good morning. Welcome everyone to the presentation of Evolutions report for the first quarter 2025. My name is Martin Karlsson and I'm the CEO of Evolution. With me, I have our new CFO Joakim Andersson. Joakim joined Evolution in February and it's great to have you here Joakim. I will start with some comments on our performance in the quarter and then hand over to Joakim for a closer look at our financials. After that, I will conclude with an outlook and then we'll open up the call for questions. Next slide, please. Let's start with the financial and operational highlights of the quarter. And first, let's focus on the operational side, as two activities have had certain impact on the financial result. The first one, which I highlighted already in the last earnings call, is that we started to add new technical measures that aim to more effectively ring fence the markets with a local regulation and ensure that our gains are only available with locally licensed operators for markets where such license exists. Following the introduction of such ring fencing measures in the UK, we have moved forward with other European markets in the quarter. This is a proactive measure. It's a move from our side in markets with high... Sorry, from our side in markets with high channelisation that the ring fencing has had limited impact. However, in markets with low channelization, we have seen a drop in revenue. As you know, we believe that regulation is positive over time and we support the regulators in the ways we can. However, as a supplier, our impact is actually quite small, as channelization is highly dependent on the regulatory framework and the parameters used, such as tax rates, proactive measures. If it is too expensive or too complicated to play, the players will disappear. That is the reality and for Regulator it's about finding the right balance to keep the channelization on high level and to protect the most vulnerable players. The second activity with an impact of the result is the continued work to stop the criminal cyber activity that we face in Asia. We are making constant progress, but the measures do impact the network in general, and the revenue is in line with what we have seen in the last couple of quarters. Despite the ring fencing effects and the cyber challenges, I'm positive about 2025 as a whole, with a very strong product roadmap that we only just have started to execute on, together with the solid underlying demand. Both online and live casino are at early stages on the global level, and we will continue to expand to meet demand. In the first quarter, we have opened a new studio in Romania, which partly makes up for the capacity that we've lost in Georgia. Later this year, we will open a new state of the art studios in Brazil and in Philippines, as well as a second studio in Michigan, while also expanding at full speed in Malta, Colombia, Argentina, New Jersey and Philadelphia. to name a few. I believe that this is a testament to our stance that we will always prioritize growth and to take market shares over margin. Even though we had various challenges in the quarter, we do not compromise with our long-term beliefs and priorities. In Georgia, the situation for evolution continues to be stable and we operate without disruptions. Our decision to not increase capacity remains as before, as we want to achieve a better balance with less dependencies on a single studio. And while we are speaking about Georgia, I would also like to highlight that we have engaged a highly reputable accounting firm, one of the large four, to conduct a full independent investigation of our operations. They have complete access to the Georgian studio and have reviewed several hundreds of documents and material. The conclusions are not a surprise to us. Salary levels are well above comparable roles. Any issues with work environment have been dealt with years ago and in direct connection with when they occurred. Any violence of our code of conduct have been handled as they should and strike participation levels have not even been close to what was reported in the media. I could go on about this for a long time, but I think we leave it there. uh for evolution the strike is a past chapter and we will continue to provide a great workplace for our employees in georgia and elsewhere let's say a few words on the actual financials net revenue came in at euro 520.9 million corresponding to year-on-year growth of 3.9 percent EBITDA decreased 1.1% compared to last year, and the EBITDA margin comes in at 65.6%, which is somewhat below our estimated full year guidance of 66 to 68%. As a reminder, we foresaw a softer margin in 2025 compared to 2024 due to both the ring fencing in regulated markets and the cyber attack countermeasures in Asia. We do, however, believe that the second half of the year will be stronger than the first half, and we keep our full year guidance as before. Our life segment was impacted by the European and Asian development, with the revenue coming in at 448.7 million, corresponding to growth of 4%. We continue to see good momentum in North America and also believe that activity in Latin America will pick up, supported by the new regulation in Brazil. R&G revenues total €72.3 million, growing year-on-year by 3.1%, a development that was softer than in the fourth quarter. I believe we can grow more, and our No Limit City brand is a testament to that, as they have several successful game launches in the quarter. To conclude this slide, I'm of course not happy with our current growth, but the measures behind it are important for our overall work to increase the gap to competition, we face challenges that we meet. Any issues we see, we fix so that we become even better every day. And we have an exceptional position to do so with the best product in the world in a structurally growing market, combined with a scalable model, a strong balance sheet and a team of more than 22,000 employees to realize the potential. Next slide, please. Moving on to the operational KPIs, which are the headcount numbers and the game rounds index. Looking at the headcount, we have kept the pace in recruitment in the quarter, and for the first time ever, we've surpassed 22,000 employees, corresponding to an 8.4% year-on-year growth. In order to meet demand for our services, we need to increase our footprint and expand our teams on a global level. I'm very proud of the workplace we offer and our dedication to offering career opportunities at all our sites. We're currently doing a major recruitment push in Brazil and in Philippines ahead of the opening of our new studios there. The Game Round Index can be seen as a general indicator of activity throughout our network over time. uh for an individual quarter it does not always correlate with the revenue development which is evident this time the increase of 10.9 in the quarter is most related to the progress of our game shows that have a huge that are usually popular next slide please now we are on the most exciting slide and the foundation of our business the offer to offer the best and most innovative games in the world We refer to 2024 and 2025 as our product leap years and this year we will in total release more than 110 games across our portfolio. At the ICE exhibition in Barcelona in January we showcased many of the headline games and the response from operators was truly great. We are now in a launch mode and among the releases in the first quarter are War, our version of Casino War game, with an engaging setting and simple routes and racetrack, which is a great example of how RNG game can be elevated using a live host. We also released Batstacker Blackjack, which is an exciting take on the classic game. In the beginning of April, we launched one of the most anticipated games of the year, Marble Race. It's as simple as it is exciting. Players bet on which marble ball that will win the race or the top two winning combination. It's a fast pace, super easy to take part in or actually just to watch. Reception has been great. Among the upcoming releases, we have Super Color Game, which is just a few weeks away. Three big dice, quick rounds with single, double and triple betting options with a multiplier of 1000. This will be a hit. And then during the summer, we have what I believe is the most anticipated game of them all, ice fishing. A speed game show with a money wheel unlike anything else. The live host will catch for multipliers fish in icy water. It's truly something different. It's spectacular. On the R&D side, we have launched 17 new games in the quarter and another 19 are set for release in the second one. The titles from No Limit City are doing exceptionally, and we have currently released some of the best slots on the market. One of the games that I would like to highlight is Duck Hunters, which was released in February, and that has been off to a tremendous start. You would have to go back a very long time to find something similar in terms of performance. So all in all, there's a lot happening right now and I'm very excited about both the latest and upcoming releases. We continue to push the limits and provide the most thrilling player experiences, further widening the gap to competition and creating value for all our stakeholders. Next slide, please. Moving on to the geographic breakdown with the revenue performance across our regions. What stands out in the quarter is the development in Europe, which was more or less flat compared to the first quarter in 2024 and down by 6% from the fourth quarter. You can clearly see the effects from the ring fencing in these numbers. What is important to remember is that the underlying demand remains strong and that through the ring fences measures have created an even stronger foundation that we can grow from. Asia remained on a stable level compared to last quarters, with a revenue of 201.9 million and growth of 2.2% compared to the first quarter of 2024. As for Europe, underlying demand is strong and we see great potential as soon as we have come to terms with the ongoing issues with the cybercriminality. North America continues its strong performance with year-on-year growth of 15%. Live games are still at early stages in the region, and we find new audiences every day. In February, we expanded our partnership with Bet365 in New Jersey, adding to its live dealer offering already available in Pennsylvania. LATAM exhibited 9.7% growth year-on-year, but declined slightly compared to the fourth quarter. We highlighted already in the last report that Brazil's new regulation had experienced some initial teething problems, which have had an effect on the performance. It's not unusual that it takes some time for us to settle in with the new regulation, but we see activity picking up. Other regions mainly consist of Africa and continue to show good year-on-year growth. A development worth noticing is the jump in revenues from regulated markets, now with a 45% share of total net revenues, which is mostly connected to the Brazil regulation. With that, I will hand over to Joakim for a closer look at our financials. Next slide, please.

Thank you, Martin. And good morning to all of you on this call. I'm very happy to be on board and hope to see you all in person at some point in time. I will now present the financial performance in some greater detail, starting on this page, page six, with our financial development over time. As you can see on this page, we are on a long term growth trajectory, but as shown in the report this morning and as presented by Martin earlier, we currently have some headwind. Net revenue in the first quarter was 520.9 million, corresponding to a growth of 3.9% compared to the first quarter last year. On a constant currency basis, we estimate the growth to 6.1%, as we saw continued negative effects from changes in the currency rates. Our reported EBITDA was 342 million in the quarter, meaning that our margin was 65.6 which is at the bottom end of our full year forecast of 66 to 68 let's go to the next slide here we will take a closer look at the profit and loss statement Let's start with the breakup of our revenue. We are this quarter as a consequence of the earlier mentioned issues showing a relatively low growth both in live and RNG with the growth of 4% in live and 3.1% in RNG year on year. You all know that we expect more from both categories and we are working hard, as Martin mentioned, on solving these issues. Our total operating expenses in the first quarter amounted to 217.5 million, which is 15% higher than the same period last year. This is a result of our increased investments into new products and new capacity, which in turn will give us continued growth in the future. Our personal expenses amounted to 119.9 million, which is an increase of 12%, driven by the net addition of 1,686 employees year on year. The other operating expenses amounted to 59 million, which corresponds to a 21% increase. Within this number, we for instance see a higher level of legal cost as we as a large global business more frequently are engaging in complicated projects where external legal advice is necessary. This cost line will over time, as for the other cost lines, scale and grow slower than our revenue. It's also worthwhile reminding that compared to last year, we are now running our studios with a less favorable, more costly resource mix as a consequence of the measures we took last year in connection with the strike in Jogja. This partial move of operations out of Jogja is having a negative impact when comparing the cost base and profitability year on year. As part of our ordinary course of business, we are obviously monitoring the news flow related to the potential changes to global tariffs. At this point in time, and from what we know today, we do not expect any material impact on our results. The financial items were negative 1.3 million in this quarter, primarily driven by revaluation of bank balances. Next tax was 47.5 million in the quarter with a tax rate of 15.7%. And all in all, we had a profit for the period of 254.7 million. And with 205.6 million shares outstanding, we get to earnings per share EPS of 1.24 euro, which is almost in line with the 1.25 we had for the same period a year ago. Let's move on to the next slide. And now I'm on page eight, where we have an overview of our operating cash flow and capital expenditures. Let's start by looking at the graph to the right, which shows the development of our CapEx. Total capex in the period amounted to 33.6 million and was split almost evenly between intangible and tangible assets. The investments into intangible assets was 16.6 million and were mainly spent on development of new games and technical improvements to the platform. The tangible investments were 17 million, mainly spent on studio space, gaming tables, servers and other technical equipment. In the graph, you can also see how our investment pays relate to the last four quarters revenue for each of the periods. As communicated last quarter, we expect the full year capex to amount to around 140 million euro. If we then take a look at the graph to the left, we can see the development of our cash flow and our cash conversion. The operating cash flow after investments amounted to 327.7 million in the quarter, with a very strong cash conversion of 87%. It's a good improvement both year on year as well as quarter on quarter, with a good contribution this quarter from a reduction of the accounts receivables. Finally for me, some brief comments on our financial position on the next page. On this page, you will, as usual, find a summary of the balance sheet for the first quarter compared to what it looked like at the end of last quarter. As you can see, our strong financial position remains. We have our bond portfolio, 101.6 million, and the cash balance of 969.2 million. Our total equity amounts to almost 4.2 billion. There are no material changes during the quarter. We have our annual general meeting on the 9th of May, and if the shareholders vote in favor of the board's recommendation, we will, which is in line with our capital allocation framework, pay a cash dividend of 2.8 euros per share, which means that the total amount of 572 million will be paid to our shareholders. During the first quarter, We used our mandate to repurchase approximately 2.1 million owned shares in the market for a total amount of 154.1 million. As communicated last quarter, the board has decided to repurchase shares for 500 million during the year, and we will start the next program of the repurchases within short. With that, I will hand it back to Martin for his closing remarks.